The sugar sector recently faced another setback as a result of a Supreme Court ruling, upholding the right of state governments to determine a sugarcane price that mills are obliged to pay farmers, different from the statutory minimum price (smp), which is fixed by the Centre. Sugar cane farmers constitute a substantial vote bank. To win their support several state governments fix a state advised price (sap) for cane, which is considerably higher than the smp. This has resulted in sugar mills accumulating huge arrears to cane farmers. For example, currently the average cane price in Uttar Pradesh is Rs86 per quintal, based on an smp of Rs73 per quintal. However in 2002-3, the Uttar Pradesh state government fixed an sap of Rs95 a quintal. Subsequently, the Allahabad High Court passed an interim order that declared state advised prices to be unviable, therefore the state government did not fix a cane price for 2003-4. On 5 May, the Supreme Court reversed the Allahabad High Court judgement and several mill owners fear that this could wreak havoc for sugar mills in sap states, such as UP, Punjab, Haryana, Bihar and Uttaran-chal. "Mill owners in these states will have to pay through their nose for cane. We worry that their existence might be threatened", says an official at the Maharashtra State Cooperative Sugar Factories Federation. Ideally, the state advised price for cane should be based on certain local considerations, such as the recovery rate from cane, sugar realisation for the factory, cost of production to the factory, cost of cultivation to the farmer, etc. However, industry sources explain that in reality the sap is purely politically motivated and the chief minister arbitrarily decides a price, which is usually very favorable to the farmers. Some mill owners also believe that in the last couple of years even the centrally-fixed smp has been based on political considerations due to pressure from the growers lobby. Clearly, this pricing controversy is having an impact on the profitability and stock prices of several large sugar mills, which experienced rising share prices since January as a result of an increase in sugar prices. For example, Bajaj Hindustan's share price on 5 March 2004 was 39.6, it steadily rose and touched 64.7 on 4 May. On 5 May (day of the Supreme Court order) the scrip dropped to 62.65 and fell further to 59.95 on 6 May. This trend is apparent in the share prices of several sugar mills across the country (see table). In January 2004, it was anticipated that sugar production would drop by 50 lakh tonnes. As a result of this free sale (open market) sugar prices rose, having a positive impact on the share prices of several mills. As Prakash Naiknavare, md, Maharashtra State Cooperative Sugar Factories Federation explains, "Prior to January open market sugar prices were as low as, Rs950-Rsl,150 per quintal. Given that the manufacturing cost of sugar is about Rsl,300 per quintal, mills were making a loss of Rs250-Rs340 per quintal." Between January and May, sugar prices rose and have stabilised at Rsl,400-Rsl,450 per quintal, improv